Got a Property TDS Short Deduction Notice? Here's What's Actually Going On, and How to Fix It

You bought a property. You deducted the correct 1% TDS, deposited it through Form 26QB, and issued Form 16B to the seller — everything by the book. Months later, an email from the Income Tax Department shows up: short deduction of TDS under Section 194-IA, demand raised. If you did everything right, why is this happening — and more importantly, is there an actual fix, not just "respond carefully and hope"?

There is. This has become one of the most common property-related tax notices in India over the last two years, and it stems from a specific, well-documented cause with a specific, government-issued relief mechanism — most explanations of this problem stop at "explain your good faith to the department," which massively undersells how directly fixable this often is.

The situation, and why it's more common than you'd think

Since PAN-Aadhaar linking became mandatory, a PAN not linked by the deadline is treated as "inoperative" under Rule 114AAA of the Income-tax Rules — not cancelled, just functionally treated as if you don't have a PAN at all for compliance purposes. Buyers deducting TDS on a property purchase almost never check the seller's PAN operative-status before paying, because there's rarely a reason to think to check it. The seller hands over a PAN, the sale deed has it, everything looks normal — and neither party finds out it was inoperative until the Income Tax Department's automated processing system flags it later.

This isn't a one-time deadline that's come and gone either. The original linking deadline was repeatedly extended — first through 2023, then to May 2024 — and PAN-Aadhaar linking has continued to be enforced as an ongoing compliance requirement, with a further deadline at the end of 2025 for a separate category of PAN holders. In practical terms, this means the underlying issue behind this notice hasn't gone away just because the original deadline passed years ago — new sellers with inoperative PANs, for various reasons, keep showing up in new transactions.

Why this actually happens

Under Section 194-IA, TDS on a property purchase of ₹50 lakh or more is 1%. But if the seller's PAN is inoperative on the date of payment, the law requires a much higher rate under Section 206AA: 20%, not 1%. The buyer, unaware the PAN was inoperative, deducts and deposits 1% as usual. The department's system later compares what should have applied (20%) against what was actually deducted (1%) and automatically raises a demand for the 19-percentage-point shortfall — plus interest.

The legal framework, correctly explained

A worked example

Property value: ₹1,20,00,000. Buyer correctly deducts 1% (₹1,20,000) and deposits it via Form 26QB, unaware the seller's PAN has been inoperative since the PAN-Aadhaar linking deadline passed.

This is an illustrative example to show the mechanics, not a real case — but the scale is realistic, which is exactly why this notice is alarming enough that people often panic and pay before checking whether relief applies.

The relief that actually resolves this: CBDT Circular 9/2025

This is the part most explanations of this problem skip entirely. The CBDT (Central Board of Direct Taxes) has already recognised this exact issue — thousands of buyers getting notices despite deducting in good faith — and issued Circular No. 9/2025, dated 21 July 2025, specifically to resolve it. It partially modifies an earlier circular (No. 3/2023) and gives clear, dated conditions under which the demand is invalid.

Also worth knowing: a separate CBDT Circular No. 8/2024 gives relief in cases where the seller passed away on or before 31 May 2024, before they had the chance to link PAN and Aadhaar — a narrower but real exception for that specific circumstance.

If your case doesn't fit the relief window

If the seller's PAN still hasn't been linked, or was linked outside these windows, the relief circular doesn't automatically apply — but that doesn't mean you're out of options, it means the path is different. In that situation:

• Get the seller to link PAN with Aadhaar now, even late (a ₹1,000 fee applies under the old Act's Section 234H for late linking) — it won't retroactively qualify for the relief windows above, but it stops the problem from compounding and may support a representation on other grounds.
• Check whether the seller has already paid tax on the capital gains from the sale — if the government has already received the substance of the tax through the seller's own return, that's a genuinely strong factual point in any representation, even outside the circular's specific relief.
• This is the scenario where getting a professional to actually review the notice, the dates, and the seller's documents is worth doing before you pay anything — the circular covers the common case, but not every case, and the difference matters financially.

One more genuinely useful angle even outside the relief windows: if the seller has already filed their return and paid tax on the capital gains from the sale, courts have in the past taken the view that the underlying purpose of TDS — ensuring tax actually gets collected — has already been achieved, and the department recovering the same tax a second time from the buyer is questionable. This doesn't automatically erase interest liability, which is assessed separately, but it's a real argument, not just a sympathy plea, and it's exactly the kind of point that's much stronger when backed by the seller's actual tax payment documentation rather than asserted without proof.

Can Form 26QB actually be corrected?

Yes — and this is also the mechanism that implements the relief above, not just a way to fix typos. Certain fields, including PAN, amount, assessment year, and critically the applicable TDS rate, can be corrected through the prescribed correction statement process. If your case qualifies for relief under Circular 9/2025, filing a correction statement is exactly how you get the rate on record changed from 20% back to 1% — the department's processing system won't do this automatically just because the PAN became operative later. You have to file it.

What a correction cannot do: override the legally applicable rate if the PAN was genuinely inoperative outside any relief window. A correction fixes what's recorded to match what the law actually required — it isn't a way to retroactively apply the lower rate to a case that doesn't qualify.

How to respond, step by step

What about interest under Section 201(1A)?

Even where the principal short-deduction amount gets resolved through relief or correction, notices in this category often include a separate interest component under Section 201(1A) — charged for the period the higher rate wasn't actually deducted and deposited. The interest calculation depends on the specific dates involved: when payment was made, when TDS was actually deposited, and how the department is treating the default period. If your case genuinely qualifies for relief under Circular 9/2025, it's worth checking whether the interest component is also addressed by the relief or needs to be separately contested — this is exactly the kind of detail worth having a professional actually verify against your specific notice, since interest calculations are easy to get wrong in either direction.

If the seller won't cooperate

This happens more often than it should — a seller who won't answer calls, share their PAN status, or confirm they've paid tax on the sale. If that's your situation: preserve every piece of communication you do have (emails, messages, the sale deed, payment proof), and respond to the notice within its deadline using whatever evidence you can independently verify — primarily the seller's PAN status, which you can often check yourself without their cooperation. A seller's silence shouldn't become your reason to miss the response deadline.

How to avoid this on your next purchase

• Before making payment, check the seller's PAN operative-status yourself on the Income Tax portal — this takes a few minutes and would have caught this issue before it started.
• Get a written declaration from the seller confirming their PAN-Aadhaar linkage status as part of the transaction paperwork.
• Deposit TDS and file Form 26QB within the prescribed timeline, and keep the acknowledgment.
• If a seller's PAN is inoperative at the time of the deal, don't assume they'll fix it later — either deduct at the correct 20% rate until they do, or get them to link it before you pay.

Complete checklist before you respond

• Notice read fully — section cited and exact demand amount identified
• Seller's current PAN status checked
• Date PAN became operative confirmed (if applicable)
• Payment date compared against the Circular 9/2025 relief windows
• Sale deed, Form 26QB, and Form 16B on hand
• Proof of payment collected
• Seller contacted for PAN copy and tax-payment confirmation
• Professional opinion obtained, if the case doesn't clearly qualify for relief

Frequently asked questions

CA Pankaj Chhabra

Chartered Accountant · Wealth Management & Taxation

CA Tripti Saini

Chartered Accountant · Taxation & Finance Operations

Related reading